6 days ago
China's rare earth magnet policy: Foreign auto firms win export approvals, their Indian units are kept on hold
New Delhi/Mumbai: India's auto industry has flagged to the government that while China is approving rare earth magnet exports to other countries, applications from India remain stuck, said three industry executives in the know.
As a result, India's production of conventional and electric vehicles could be hit as early as this month if China doesn't resume exports of its rare earth magnets to the country soon, auto industry representatives told the secretary of the ministry of heavy industries on 29 May.
China has a near monopoly on rare earth magnets, which are essential for manufacturing electric-vehicle motors and other auto components.
Representatives from several automotive companies and two industry bodies told the secretary that while foreign units of multinational auto component companies were receiving approvals for rare earth magnet shipments from China, their Indian subsidiaries were still awaiting approvals, according to three industry executives.
While the industry body did not name any companies at the meeting, Mint has learned thatGermany-headquarteredBosch, Continental Automotive, and Mahle Group have received approvals for their foreign units but their applications from India are yet to be accepted.
'A supplier's German or US counterpart is getting approvals, but the same supplier's Indian unit is not getting it," said one of the three industry executives cited above. 'There are no written guidelines for applying for a licence. So, something or the other can be missed and they (China) can stop the approval for any flimsy reason."
With rare earth magnet exports from China to India stalled, both conventional and electric vehicle production are at risk of slowdown. Major auto players have warned that disruptions could halt production as early as this month.
A delegation of industry representatives is ready to head to China, with visas approved for some of them. However, the Chinese commerce ministry hasn't given an official appointment for a meeting, said thesecond of the three executivescited above.
The Automotive Component Manufacturers Association of India (ACMA) and the Society of Indian Automobile Manufacturers (SIAM), whose representatives were present at the 29 May meeting, the heavy industries ministry, and Mahle did not respond to Mint's emails seeking comment. Bosch and Continental declined to comment.
Earlier in May, auto industry representatives rushed to the Prime Minister's office and the commerce ministry over concerns that disruptions in the supply of rare earth magnets from China could potentially bring their production lines to a stop. Last week, Bajaj Auto Ltd warned that its production would be severely affected if Chinese restrictions on rare earth magnets are not eased by July.
Also read | China's restriction on rare earth magnets repel Indian EV players
No immediate alternatives
About 30 Indian companies have submitted applications to Chinese authorities for rare earth magnets. None has been approved so far. Two of these applications have been rejected, said asecond industry executive, adding that the rejections cited incorrect documentation.
Rare earth elements are a group of 17 silvery white metals like neodymium, gadolinium, dysprosium, and terbium. These are crucial for manufacturing motors used in electric vehicles, electronics, medical devices, and military hardware. China controls over 90% of the global supply of these elements.
An executive leading an EV motor manufacturing company in India said his application for importing rare earth magnets remains pending with the Chinese foreign ministry. The company's vendor in China helped file all necessary documentation for the application and is awaiting a response from Chinese authorities, without which it cannot ship even samples, the executive said.
At the 29 May meeting with the heavy industries secretary, the domestic auto industry also explored alternative solutions to the problem, including building motors that do not use rare-earth magnets. However, these are long-term solutions as taking any new technology to production could take at least two years, the industry executives cited above said.
The only viable alternative is to import aggregate parts like entire motors from China instead of importing just the magnets, they added. There are no restrictions on the export of parts containing rare-earth magnets from China.
'Frankly there is no alternate solution right now except importing the higher-level aggregates. But if larger aggregates are imported, 'Make-in-India' will be hurt," said the first executive quoted above. 'China is weaponizing trade. The government now needs to find a diplomatic solution behind closed doors."
Also read | Automakers race to find workaround to China's stranglehold on rare earth magnets
Analysts at investment banking firm Jefferies said in a note dated 21 May that while importing motors from China was a solution, automakers would need to realign their supply chains and vehicles might require fresh homologation approvals. Homologation is the approval process for a vehicle to ensure that it meets the technical standards of a country.
Import of the entire motor could also reduce domestic value addition, which is a requirement for claiming benefits under the government's production-linked incentives scheme, the Jefferies analysts noted.
Rajat Mahajan, partner and automotive sector leader at Deloitte India, said the situation needs to be resolved through diplomatic channels. 'This situation will hopefully get resolved via diplomatic channels. But if it continues then we may see a shift towards other powertrains for large OEMs (original equipment manufacturers)," he said.
